Incremental Analysis: Accepting a Special Order

Sutherland manufactures and sells 110,000 laser printers each month. A principal component part in each printer is its paper feed drive. Sutherland's plant currently has the monthly capacity to produce 150,000 drives. The unit costs of manufacturing these drives (up to 150,000 per month) are as follows:

  Variable costs per unit:

      Direct materials

$

45  

      Direct labor

25  

      Variable manufacturing overhead

5  

  Fixed costs per month:

      Fixed manufacturing overhead

$

1,430,000  

Desk-Mate Printers has offered to buy 20,000 paper feed drives from Sutherland to be used in its own printers.

a.

Compute the average unit cost of manufacturing each paper feed drive assuming that Sutherland manufactures only enough drives for its own laser printers. Show your work on how you came up with answer.

  Average per-unit manufacturing cost

$

b.

Compute the incremental unit cost of producing an additional paper feed drive. Show your work on how you came up with answer.

  Incremental unit cost

$

c.

Compute the per-unit sales price that Sutherland should charge Desk-Mate to earn $500,000 in monthly pretax profit on the sale of drives to Desk-Mate. Show your work on how you came up with answer.

  Unit sales price

$